Four Wheeler Industry: Performance Analysis and Future Problems

The auto industry in the financial year so far had a balanced first quarter. Things do seem calm for now but is it the lull before a storm? Hope though has not been lost. The industry wizards have high expectations from the forthcoming months thanks to the announcement of the seventh pay commission and possibility of a strong monsoon.

In the first quarter of the financial year 2016-17, sales figures grew by 6.66 per cent, recording 6.97 lakh units moving out from dealerships. Last year the figures in the same month stood at 6.53 lakhs. Think that’s a reason to rejoice? Well, sadly sales of passenger vehicles dropped by 1.41 percent from 4,82,614 units in Q1 2015-16 to 4,75,799 in this quarter. Utility Vehicles though showed great signs thanks to the stellar performance by products from Mahindra, Maruti and Hyundai. Their numbers grew from 1.28 lakhs last year (Q1 FY16) to 1,76,788 units in Q1 FY17. That’s a growth 38.04 per cent!

Being one of the biggest contributors to the country’s GDP, the industry has the potential to play an even greater role. Several factors though are working towards downplaying the performance:

The biggest reason is the fall of diesel. While India has been traditionally a land of diesel lovers, the reducing gap between petrol and diesel prices has impacted diesel vehicle sales. Also adding salt to the wound is the Supreme Court judgement banning registering of diesel vehicles with an engine displacement of more than 2,000 cc in the National Capital Region. Several other states are also slated to do the same!

Rising prices of commodities is another factor. As per SIAM, prices of steel, pig iron and polypropylene has risen by more than 10 per cent. Copper and aluminium has also been on the receiving end with the latter rising by nearly 5 per cent. The price of natural rubber on the other hand has risen by 27 per cent on a year on year basis (nearly 21 per cent of this rise has been in the last 3 months). The industry imports most of its steel requirement from Japan and Korea. Introduction of safeguard duty on this has been a big problem.

Exports! While figures for utility vehicles have grown here as well, numbers though have remained almost flat for passenger cars. The biggest reason for this has been the withdrawal of incentives from countries like Sri Lanka and Bangladesh. Folks at SIAM also believe that African nations too have reduced import of cars from India due to erratic dollar prices as against their local currency.

Will these ultimately harm the industry or will manufacturers be able to emerge to a better future in the long run? What say guys?